Author: Michael Belinsky

Our team at Instiglio has updated the online map and database of social impact bonds worldwide. This resource helps get a snapshot of SIB activity around the world. For SIB wonks, the resource contains a data set of various SIB parameters, such as project duration, size, and topic. We will be updating this resource periodically, so check back to see how the SIB landscape evolves over time.

I am very excited by a report published today by the White House Global Development Council, which strongly recommends pay for success and DIBs. Here is the recommendation:

Utilize Payment for Results. The overwhelming majority of development dollars remain focused on an outdated model of paying for inputs. Standard development contracts typically fund an agreed plan of activities and then disburse as these activities are completed, giving few incentives to try new ways to reach a stated program goal. This approach has too often locked the U.S. government and its developing country partners into activities even if they fail to deliver concrete results prioritized by both parties. In contrast, payments for results funding models represent a stark shift from traditional approaches. By illustration, a program that provides payment for the number of students who have finished school or acquired specific skills (an outcome) is dramatically different from a program that pays for number of teachers trained (an output). We urge USAID and other actors in the U.S. government development community embrace a bigger push to utilize outcome-based financing as a regular part of their operations. One option would be for President Obama, working closely with Congress, to establish a Development Impact Fund to support initiatives by agencies to pilot, and then scale, outcomes-based development approaches, like Cash on Delivery and Development Impact Bonds, across a range of different geographies and sectors. Another option for advancing payment for results would be to coinvest along with other donors and private foundations in a multi-donor development outcomes fund that would support pay for performance efforts and Development Impact Bonds. Pooling resources together in such a fashion could catalyze reforms not only for U.S. development practices, but also for the broader global development community.

An interesting new social impact bond is being designed in DC. This one is focused on improving water quality standards.

https://www.dcwater.com/news/listings/press_release711.cfm

Mar 12, 2015 — The District of Columbia Water and Sewer Authority has been awarded a grant from Harvard University to develop an innovative financing model for green infrastructure (GI). The Social Impact Bond Technical Assistance Lab (SIB Lab) at Harvard Kennedy School will work with DC Water to explore the use of Pay for Success (PFS) models to develop GI storm water solutions designed to improve water quality, mitigate the impacts of climate change, and promote environmental, socio-economic and health benefits.

In the Pay for Success model, governments partner with private sector investors who provide up-front funding to promising service providers. Investors only receive a repayment from the government if the service provider’s work is measurably successful.

“In addition to the benefits of green infrastructure, this work will further develop the social impact bond model and will be a huge public service to the industry and other CSO communities across the nation,” said DC Water CEO and General Manager George S. Hawkins. “And the SIB model is measurable, so that our investors and public stakeholders can objectively quantify results, which promotes accountability and smart programming.”

DC Water was one of five grant recipients, along with the states of Arkansas and Nevada, the Commonwealth of Pennsylvania, and the city of San Francisco.

“We are honored to receive this grant of technical assistance from the SIB Lab to provide the intellectual capital and institutional resources of Harvard University to help DC Water develop an innovative and unprecedented financing solution,” said Mark Kim, DC Water’s Chief Financial Officer. “Adapting the pay for success model to finance our GI initiative will broaden the reach of social impact bonds to more efficiently allocate project risk and deliver improved environmental outcomes.”

In 2005, the U.S. Environmental Protection Agency (EPA), U.S. Department of Justice (DOJ), District of Columbia (District) and DC Water entered into a 20-year, $2.6 billion consent decree mandating the construction of a deep tunnel system to remediate combined sewer overflows (CSOs) in order to meet national water quality standards under the Clean Water Act. CSOs are one of the major sources of water pollution and approximately two billion gallons of CSOs are diverted into DC’s waterways annually.

DC Water is pursuing the PFS model as a potential framework for financing a pilot Green Infrastructure Project (GI Project) that is designed to reduce the scope, scale and cost of the mandated grey infrastructure tunnel system, alleviate ratepayer burden, and produce measurable outcomes for communities within the District.

Specifically, the SIB Lab will be using available data and evidence to conduct a feasibility analysis of the proposed GI Project using the PFS model. The feasibility analysis would focus on five main aspects of the PFS transaction: (1) assessing whether the proposed interventions produce the desired outcomes; (2) confirming that the likely outcomes satisfy cost-benefit principles; (3) developing an efficient and effective payment structure within a PFS model; (4) insuring that there are adequate service providers that can deliver the desired outcomes; and (5) establishing rigorous evaluation criteria and metrics to measure the initiative’s outcomes.

The paper is finally out.

In the social entrepreneurship category, with one of my co-founders, Avnish.

http://www.forbes.com/pictures/emeg45edife/mike-belinsky-29-and-avnish-gungadurdoss-28/

Three new publications are worth noting:

1. Instiglio’s study on SIBs in SE Asia. In 2013, the World Health Organization commissioned Instiglio to research the application of social impact bonds to expanding universal healthcare in Southeast Asia. I led the team that wrote the report. The report has been winding its way through the editorial process throughout 2014. I expect the report to be released in a special journal of the WHO in the first quarter of 2015.

2. Two case studies published by Harvard Kennedy School about Instiglio. Dan Levy and Pam Varley at HKS have written two case studies about our organization. The first case is designed for a policy analysis class; the second for a statistics class. (Both are available for purchase at Harvard Business Publishing.) I heard from a colleague that the policy analysis case was also taught in the Business at the Base of the Pyramid (BBOP) class at HBS this year, which is exciting and humbling because I took that class 2.5 years ago. (I don’t believe I took the HKS classes where these case studies are being taught as well.)

I wrote earlier about the number of social impact bonds in the world.

The exact number of these programs that are being designed should not be itself important to know.

However, knowing these numbers over time may answer some interesting questions:

– What is the rate of adoption for this innovation among policymakers? This speaks to the perception of SIBs among policymakers and to the change in the ease of starting SIBs.

– What is the time to market for SIBs? This question speaks to efficiency, which is an important factor because SIBs take a notoriously long time to create.

Overall, I have seen positive evidence for both questions: the rate of adoption is increasing, and the time to market is decreasing.

Update: Today we get another estimate of SIB market size. Bloomberg Businessweek writes: “With more than a dozen states and municipalities putting together deals, including Republican-led Ohio and Democrat-controlled Colorado, the SIB market will grow to $500 million from the current $80 million by the end of 2015, the Rockefeller Foundation forecasts.”

In the UK, the Cabinet Office announced that it will direct GBP 30 million toward social impact bonds that will aim to improve a set of social outcomes for 14-24-year-olds.

I have three observations on the announced programs.

1. Peterborough does not appear to have chilled the UK market.

This funding package was announced around the same time as the announcement that the UK government will be changing the Peterborough SIB because its Transforming Rehabilitation initiative makes it impossible to evaluate performance in the third cohort of that pilot. If these changes to the Peterborough SIB arise from a government negative opinion of the program, it would have been unlikely to announce this fund.

2. Government still using both SIBs and payment by results.

This funding will be “delivered through social impact bonds,” not through the more general payment by results approach. According to the Civic Society article: “”Bids will need to come from providers of services and the schools they will be working with alongside investors to provide up front funding to deliver interventions.”

Does this mean the UK government prefers SIBs to payment by results? That is, does the UK government prefer a payment arrangement that includes an investor in the original design of the program, rather than leaving it up to the service provider whether it raises capital or finances the program itself?

The Transforming Rehabilitation initiative, which the UK government recently unveiled for the entire country, will contract providers through payment by results rather than through social impact bonds. (Specifically, the government says: “New payment incentives for market providers to focus relentlessly on reforming offenders will be introduced, giving providers flexibility to do what works and freedom from bureaucracy, but only paying them in full for real reductions in reoffending.”)

This could mean that the government thinks that SIBs work better in addressing some social issues while payment by results works better in other issues. It could also mean that the government is unsure which approach works best and is still experimenting.

In the US, governments also seem to be experimenting with different designs. New York State’s request for proposals for the recidivism and employment pay for success contract asked only service providers to apply. Intermediaries were not invited to apply separately from providers the way they were asked to do in the Massachusetts RFP. Service providers were free to ask intermediaries to join their proposals, but they were not required to do so. The results from the pay for success RFP released here by the Nonprofit Finance Fund and Irvine Foundation indicate that intermediaries were not required to apply with service providers.

3. Groups of government agencies are best fit to execute SIBs and payment by results programs.

The announcement says that this program has “over 7 central government departments involved in the 2 programmes.” This cross-agency collaboration has been vital to the development of SIBs in the UK, the US, and will likely remain important for future projects that aim to save money by investing in preventative services. For example, Harvard’s social impact bond lab director Jeffrey Liebman says that such collaboration in the US save money for the federal government in “Supplemental Security Income, Disability Insurance, Medicare, and Medicaid.”

For those of you interested in counting the number of social impact bonds in the world, another data point came up in the written testimony that Mark Fisher delivered to the U.S. Congress last week. Fisher writes: “There are currently 15 SIBs in the UK, with over 50 in the development pipeline.” Most of the 15 SIBs in implementation are captured in the SIB map on the Instiglio web page. I do not know much about the “over 50” programs that are in development, but judging from the topics that have been chosen by the previous 15 projects, as well as ones that have been launched around the world, the 50 SIBs in the pipeline will likely focus primarily on redicivism, workforce development and foster care.

I have not written about this SIB yet, but here is the description from a JP Morgan Social Finance report:

Holland: ABN AMRO and Start Foundation invested EUR 680,000 in ‘Buzinezzclub’, a Dutch company which aims to help around 80 youngsters annually to either a job or an education. The company focuses on youngsters who normally lack the qualifications to enter the labor market. The project is funded by a social impact bond, the first of its kind in the Netherlands. The municipality pays a premium of up to 12% annually, depending on the amount of social benefits it saves because of the project.